How Well Should Your Business Perform?

Few tools available to the business leader are as useful as a good sales forecast. When you know – with the 94.7% accuracy we consistently achieve at ITR Economics – the “when” and “how much” for your top line, you will deploy resources when effective and hold back on expansion initiatives when they will likely lead you to overextension. Further, you will anticipate when to have cash at hand for the share-gain opportunities that arise at the cusp of business cycle upturns, while other players are still reeling from recession.

With a sales forecast, you will know how your business – with its particular mix of advantages and disadvantages, strengths and deficiencies – will likely perform. But do you also know how a business such as yours should perform, all internal factors being equal and contending purely with the market at large?

Composite Market Performance

Such insight could be valuable to your business strategy:

• If you objectively observe that your business is underperforming its composite market, then you are likely contending with internal disadvantages or company-specific hindrances. It is also possible that new competitors have entered the market, or you may be losing market share to an established competitor. Once alerted to the presence of such internal or external factors, you can identify and address them.
• If your business is outperforming its composite market, you can identify the factors or advantages that are apparently setting it apart from its competitors. Reinforcing these advantages or applying them across other segments of your business if they are not already present are logical next steps.
• If you bear responsibility for sales numbers, an accurate forecast for your composite market will help you set expectations within your organization. When the actual data comes in, you will have a realistic benchmark for your performance.

Specificity

When it comes to your particular composite market, how specific can you get? A business leader whose company manufactures construction machinery might take a look at US Construction Machinery New Orders data, which is compiled and published by the US Census Bureau, to get a view of their specific market.

Construction Machinery New Orders is indeed a useful dataset; we track and forecast it at ITR Economics. It is one of the 40+ markets that we cover monthly in our ITR Trends Report™.

But the New Orders dataset is by no means the peak of market specificity. It is not specific about:

• The construction segments served by the company – i.e., residential, nonresidential, or a mix
• The construction subsegments served by the company – e.g., homes vs condominiums for the residential sector, or schools vs big box stores for the nonresidential sector
• The regions served by the company
• Products the company sells that are not construction machinery
• Pricing pressures specific to the company

Considerations

How can you incorporate data pertaining to the above into a picture of your market that is as specific and as accurate as possible? You will need to consider:

• Weighting: How much of the overall composite market does each component account for?
• Data: Where can you find data that gives you insight into the specifics listed above? How do you know that the data is accurate?
• Timing: When the price of a key input commodity for your company (or for a supplier of your company) goes up or down, do you see an immediate impact to your top line, or does it take some time?

Solution: ITR Trusted Advisor

Clearly, creating a specific and accurate representation of your market – not to mention forecasting it – will require a good deal of heavy lifting. At ITR Economics, it is a service we are happily perform for our clients as their Trusted Advisors. Our EVP 360™ consultative reports include not only a sales forecast, but also an accurate and specific representation of your composite market, as well as a forecast for it. Let’s talk.